TRS Pensions, Health Benefits Under Scrutiny at State Capitol—Let Facts Trump Ideology

It’s no secret that operatives on the far right of the political spectrum see the current state revenue shortfall as a heaven-sent opportunity to shrink and shirk state obligations. One of their prime targets is the defined-benefit pension program run by the Teacher Retirement System. They have tried to capitalize on scary headlines from other states such as Illinois, where public pension funds really are seriously underfunded, to argue that Texas ought to switch to a defined-contribution plan. Under their desired alternative, the state would contribute a reduced amount to something like an individual retirement account, and retirement benefits would not be guaranteed.

The ideologues had to be disappointed, therefore, by the evidence presented at an informal briefing at the capitol today, which demonstrated that the TRS pension fund, in contrast to those of states like Illinois, is in “pretty good shape,” as Sen. Robert Duncan, Republican of Lubbock, put it. His House counterpart, Rep. Vicki Truitt, Republican of Southlake, laid out some of the relevant facts:

–The TRS pension system has a funding ratio of 82.9 percent, exceeding the 80-percent level usually cited as the mark of a healthy fund.

–The TRS rate of return has exceeded the 8-percent rate targeted by TRS actuaries for decades.

–As a result, state taxpayers’ share of benefits paid is only about 20 percent. Earnings on investments cover some 60 percent of benefit payouts; the other 20 percent comes from employee pension contributions.

–TRS has the lowest state contribution rate of any state for a plan that covers employees who are not within Social Security (95 percent of school employees in Texas are in school districts that opted out of Social Security back in the 1980s; another dozen-plus states have the same setup).

–Benefits in Texas are hardly extravagant, with 68 percent of TRS pensioners receiving less than $2,000 per month.

–Undergirding the TRS pension fund is the state constitution, which requires a minimum 6-percent contribution from the state and a matching contribution from employees.

TRS executive director Ronnie Jung added more facts to the discussion:

–One out of every 20 Texans is a TRS participant.

–The pension fund is up $10 billion since August, totaling $105 billion—which also represents a recovery of $30 billion since the financial market collapse two years ago. The fund gained 14.8 percent last year, and over the years since the 8-percent target was set the average return has been 9.2 percent.

–Taxpayers put $2.3 billion into TRS last year, but the system was able to pay out $6.6 billion in benefits. The spending of those benefits generated $900 million in state and local taxes, so the net cost to the taxpayer for $6.6 billion in benefits paid was only $1.4 billion.

–A national study has found that defined-benefit plans like the TRS system get more bang for the buck, costing only 46 percent as much as defined-contribution plans for each dollar of benefits delivered. (That’s partly because large, pooled, professionally managed funds like TRS get better average returns than individual accounts that are partly eaten up by fees.)

–The separate TRS-Care program of retiree health care does have a long-term funding problem, but that problem is caused precisely by the fact that it is not a pre-funded, defined benefit; it is a defined-contribution plan that has been funded only on a pay-as-you-go basis from one biennial budget period to the next.

A third key presentation at today’s briefing came from Keith Brainard, research director of the National Association of State Retirement Administrators. Among his major points:

–Defined-benefit plans like TRS are more efficient and cost-effective than defined-contribution plans. Two states that switched to defined contributions—West Virginia and Nebraska–found this out the hard way and have switched back in recent years.

–For all the talk about the high cost of public pensions, the latest data show that they accounted nationwide for only 3 percent of state and local expenditures—and in Texas it was less than 2 percent.

–Both TRS and the Employees Retirement System for state-agency and higher-education employees have done a “remarkable job” of providing secure pension benefits with limited tax dollars.

The briefing also included a presentation of the right-wing case against defined benefits from former Rep. Talmadge Heflin, now affiliated with an Austin think tank called the Texas Public Policy Foundation. But his ideological argument didn’t hold up very well next to the facts laid out so effectively by Rep. Truitt and retirement experts Ronnie Jung and Keith Brainard.

If you would like to see a videotape of the briefing for yourself online, use this link:  http://www.house.state.tx.us/video-audio/capitol-events/, and then click on “1/27/2011: Public Pensions Briefing.”

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